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Multinational Corporations’ Management of Subsidiaries Research Paper

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Updated: Jul 12th, 2020

Background

Multinational corporations, also known as transnational corporations, have defied geographical borders and have taken their business activities beyond their native borders (Campbell et al. 2002, 132). These organizations are expanding beyond borders to tap in more lucrative markets and increase their business activities hence maximize on their profits. Business corporations are usually faced with a lot of competition and therefore business activities within borders may sometimes become hard or once companies achieve their domestic targets they may instead decide to venture into the external market to serve a larger market.

Some examples of such companies include Tesco which started its operations in Britain but is now in more than 13 countries across the globe, others include the Coca-Cola Company, Toyota, Samsung and many more. Also, as the need for businesses to expand and invest continues to grow depending on the corporate ambitions of an organization and the general direction in which management drives organizations may either attempt to acquire affiliated organizations by acquiring stakes (Camillus 1986, 12).

However, the issue of management of multi-national companies presents a lot of challenges and difficulties hence calls for a lot of strategic thinking. Some companies have opted to adopt a mixed kind of management system where each region or subsidiary adopts a different system best-suited for its operations without regard to the parent company system. Management of the organization is always an area of concern of many businesses ranging from sole entrepreneurship, partnerships and also corporation.

Each business entity presents its management challenges and therefore requires special attention and different management styles to succeed (Charles 2009, 10). Additionally, the ways of doing business usually vary from region to region and even if an entrepreneur runs businesses from different continents he/she may be forced to adjust the way he or she manages these businesses and as a result making business management in a multinational scale somewhat a tricky task that requires special attention and skills for success to be realized.

Corporations are special types of organizations and therefore the larger and more diversified they become, the more likely management challenges are to arise therefore making management of such organizations more tricky. Moreover, when an organization appears to be a multinational and at the same time a subsidiary or even a parent company there also is a strong likely hood that there will exist a lot of leadership and managerial conflicts, therefore, requiring the organization to choose the most suitable style to manage the organization with a high degree of efficiency.

Both market and non-market challenges have made it quite tricky for the European commercial enterprises to successfully break ground in Asia and especially China that also arise to different cultural perspectives of conducting business (Kefela 2010, 44). Chinese society is somehow reserved and prefer consuming products from local companies. Besides, the Chinese government has often natured the culture of nationalism amongst its citizens consequently making in hard for foreign multinationals like the likes of Google to make it in the Chinese market (Ansoff 1995 76).

It has, therefore, become quite essential that management takes quite a different approach to conquer this market. Without considering changing and embracing new management techniques that are in touch with the host countries where the affiliated/subsidiaries are located then the company may end up facing managerial and leadership deficiencies that may impact the performance of the organization and lead the organization into turmoil or even managerial crises.

Against this background, in our research paper, we intend to focus on the reason why some organizations prefer having different management styles within its operation, though one entity is running and the benefits that accrue out of this approach.

Preliminary Literature Review

It has in the past become particularly hard and challenging for commercial enterprises in the west to especially find it easy to enter and penetrate the Chinese market. Many of these businesses who thought that they could simply adopt the same type of management orientation and strategies have often found themselves flopping in that market and therefore they have been forced to opt for other strategies to conduct business more smoothly and efficiently. It has, therefore, become completely necessary for these companies to come up with promising management methods that are more in tandem with the Chinese market.

Tesco is a multinational global general supermarket chain that has its roots back in Chestnut, United Kingdom. The business empire of Tesco spreads to over 14 countries across Europe, Asia and America and the company are among the largest retail chains in the world behind Wal-Mart. The company successfully entered into the Chinese market back in 2004 after acquiring a 50% stake in the Hymnal chain and has ever since continued expanding business.

However, to continue the successful walk it has been forced to adjust its business model to enable its operations in the foreign lands and also embrace cooperative techniques that are in line with their corporate goals. The Chinese economy, on the other hand, is very promising and offers a lot of potential for existing and prospective businesses. Urban centres, on the other hand, cannot be ignored, as it is currently estimated that over 600 million people live in urban centres in China, this fact makes it much easier and simple for businesses to concentrate their business activities in these centres.

Economic forecasts are very promising and seem to predict that the Chinese economy is still growing rapidly and it could overtake the Japanese economy by around 2015. Tesco aims to capitalize and build its business base in the attractive China market attractive, considering that Tesco sells a wide range of products ranging from basic goods such as groceries and cereals among other products that are regularly consumed by the Chinese population.

With almost 4 million visits per week and a disposable income still expected to increase sharply in the future, the management in Tesco is faced with a dilemma of how to capitalize on such events as they occur. The management is expected to develop strategies that will help them capitalize and increase the revenue streams that they expect to earn and at the same time shake off competition. Ken Towle, the CEO of Tesco, China, has made it clear that the company intends to double the number of business outlets in China to about 2000 and open over 40 malls that will increase the number of customer traffic tremendously.

In the UK, Tesco is run by a different group of management and since there exists a large geographical and cultural gap between Asia and Europe, Tesco normally chooses to appoint or nominate leadership that will instead to ahead to run their branches which are overseas or to run any companies which they have a controlling interest (Fletcher 2010, np). It, therefore, becomes quite evident and clear that Tesco has embraced the fact that multinational companies are required to be very flexible and the headquarters back in Britain usually, therefore, allow and embrace different management styles that usually come as a result of venturing into foreign business enterprises.

European companies are not considered to be as quite aggressive as compared to their Japanese and American counterparts due to the different cultural orientation of the individuals who run these operations (Ansoff 1995,122). Due to this fact, ultimately the result of a strategy that is ultimately put in place by management to run these transnational/multinational corporations will, therefore, be different impacting on the overall outcome and performance of this organizations. By having this in mind, Tesco makes sure that there is a clear route of communication between its headquarters in the UK and all other subsidiaries that fall within its control worldwide.

Entering the Chinese market has proved hard for very many European and even American firms and therefore consequently many companies have been forced to change their approach of doing business and therefore embrace the concept of forming partnerships with local businesses to be accepted by both the Chinese public and authorities. Multinational companies have complex management structures that are usually established at their headquarters but because expansions usually bring other challenges in management, when these organizations acquire a controlling stake in other companies they, therefore, attempt to exert their influence in the management structure of these organizations to have interests of these subsidiaries aligned with the top leadership of the multinational corporations.

When Volkswagen entered the Chinese market back in the 1980s at the same time with other multinational automobile manufacturers, Volkswagen easily penetrated the market because it adopted a management structure that was less competitive and more cooperative. A cooperative business approach allows a company to consult and contract services from other companies which are more used to the country and therefore have a better understanding of the industry and therefore they can assist a multinational to smoothly operate the business form their country by forming a symbiotic relationship.

Affiliate companies may often be either large or even smaller than the multinational company which has a controlling interest in it. Commonly, corporations are run by a board which stands as the top leadership and also as the main decision making organ, but apart from these individuals these corporations also end up having top business executives who are not necessarily in the board of directors as part of the management team. Consequently, to gain control and therefore influence the process of decision-making by parent multinationals will often try to influence those individuals who are to be included in the board of directors and top management. As a result, once multinational attain a controlling stake they usually go forward to choosing individuals who have knowledge and experience together with networking abilities within that nation.

Tesco would have found it hard to acquire and also negotiate for prime properties within Chinese urban centres due to the numerous market and non-market barriers that foreign transnationals usually face and the company consequently went forward to look for help from a well-experienced partner whom they decided and do business together and finally China Property company came into the equation.

Management techniques and styles of multinationals should, therefore, be quite flexible and suitable to embrace any cultural ambiguities that occur during the process of doing business (Porter 1990, 72). Some benefits usually do arise especially when multinational organizations which are parent companies use different management models or styles to operate in different markets and firstly this approach allows these companies to have a more flexible approach that allows that tom effectively adapts to different markets and operate with a high degree of efficiency thereby enjoying a smooth business running.

Additionally, business practices are not homogeneous and therefore the sooner a company embraces this then the better it is likely to perform business-wise. While companies are also faced with a lot of barriers to entry, by adapting to a suitable management style that applies specifically to the region or market within which the subsidiary operates then these multinationals are more likely to succeed (Kourdi 2009, 138). That is why it is sometimes necessary for multinational organizations to enter into trade pacts and also management contracts that will allow these companies with affiliated companies not to waste their time in the trial and error process of choosing and rejecting various managerial approaches.

It is for that reason that management practices, styles, approaches of successful multinational corporations are not homogeneous and therefore heterogeneous. It is important to know that by simply embracing various management styles/approaches multinational companies can be able to perform better and even do well in the market and consequently it becomes easier and simple for such organizations to carry out their business activities throughout the industries value chain with more simplicity and more ease (Koontz & Weihrich 2009, 133). On the other hand, a stiff transnational organization that continues operations with the same managerial style without strategically altering its management it may end up losing business or become unsustainable with time (Jeremy 2009, 62).

Research questions and objectives

Following the preliminary literature review, it is clear that many multinational corporations have often opted to manage their subsidiaries in slightly different ways as compared to the parent company. There are substantial reasons behind this fact and therefore it becomes completely necessary to know why transnational institutional are rapidly following this path especially when opening new foreign branches or acquiring stakes in established companies, with more emphasis on Asia. Significant benefits accrue from carrying out business this way and therefore it becomes important to know why and the costs that may arise.

Research questions

  1. In what various ways does the management of subsidiaries/affiliate companies located in Asia differ in management as compared to how parent transnational companies run manage their business operations in Europe?
  2. What is the main reason why transnational companies opt to change their management style especially when they enter into the Asian market, through subsidiaries/Affiliate companies?
  3. Are there any benefits that arise from changing or altering the way multinationals manage their businesses especially when they enter into the Asian market?

Research objectives

  1. To find out why precisely companies opt to change their management approaches especially when it comes to subsidiaries and affiliates in the Asian market.
  2. To identify various benefits that multinational companies are bound to face especially when they choose to alter management styles when especially when the companies in question are either affiliates or either subsidiary.
  3. To identify any differences in management styles which exist between Multinational Corporation and its subsidiaries?

Research Plan

The research plan gives us a framework or a guideline in how to collect relevant data that will be analyzed to achieve the objectives of this research (Constas 1992, 155). The research paper will ensure that it addresses the relevant audience and matter at hand and we will diligently avoid the introduction of bias. We intend to interview at least ten individuals within the management of either Tesco and Volkswagen or both and use interviews, questionnaires and also secondary data to come up with relevant information regarding the issue of transnational business organizations and how they use different management approaches within various regions especially Asia to achieve organizational success.

Data collection methods

Interviews

We intend to use both structured and semi-structured questionnaires, which will be administered to the interviewees who will be selected using a systematic sampling method. The advantage of interviews as a data collection technique is that it is easier to use and efficient for gathering responses that are more qualitative and rich in text. Also through this, we will be much able to gather more concise responses that deeply try to explain the reasons behind the answers that the interviewees give (Tashakkori & Teddlie 2003, 40).

Due to time constraints and the busy schedule of management of these corporations and also the distance separating the researcher for the actual location of some of these business executives the researcher considers at some instances to use telephone interviews to ask questions and get responses that are in tandem with the research objectives. The telephone interviews are to be conducted during the lunch hour of normal working business days. We also consider administering an online interview through iGoogle and Skype.

Secondary sources

The ability to replicate findings of previous researches that were done within the same field can be used as a source of data to this particular research and therefore making it quite possible to improve on the quality and magnitude of findings that are to be included in this research. There are many online and industry sources that can be used by individuals to act as a source of data for this research and improve on the final findings of this research.

Data analysis

The data analysis phase of research must be carried out more diligently because any inconsistencies in this process may lead to wrong interpretation of data which was collected (Tashakkori & Teddlie 2003, 51). Data analysis should be objective and no degree of bias should, therefore, be introduced because once data has been contaminated or manipulated then the findings and recommendations may often end up being completely useless to those who intend to use the research results (Constas 33)

Because the main reason of the research is to find out why multinational companies use different management practices to manage their subsidiaries especially in Asia and to expose benefits arising from using different management practices within subsidiaries, the research is bound to be qualitative. Hence, structured and semi-structured questionnaires used in the research are expected to give findings rich in text and more qualitative.

Ethical considerations

The research questions for both the telephone interview and one-on-one interview are to contain data that respects the privacy of those who are interviewed. Moreover, it will be made clear that data gathered is private and for academic reasons and therefore will not be released to any other parties (Constas 1992, 81). Additionally, the questionnaires and research questions for the telephones are to be carefully screened and tested by neutral subjects before they are forwarded to the targeted interviewees to ensure that the questions which are asked are not offensive and therefore adequate in meeting the objectives of the study. Findings of this research are as a result to be treated with respect and not altered to fit the needs/desires of the interviewer without necessarily making them uncomfortable.

References

Ansoff, H. I, 1995. Corporate Strategy: An Analytical Approach to Business Policy for Growth and Expansion. New York: McGraw-Hill.

Camillus, J., 1986. Strategic planning and management control: systems for survival and Success. Lexington, KY: Lexington Books.

Campbell, K. et al., 2002. Business Strategy an Introduction, 2 edn, Linacre House, Banbury Rd: Butterworth-Heinemann.

Charles, M. et al., 2009. Essentials of Marketing, Natorp Boulevard: South Western Cengage Learning.

Constas, M. A., 1992. “Qualitative data analysis as a public event: The Documentation of category development procedures.” American Educational Research Journal, 29, 253–266.

Fletcher, R., 2010. The telegraph. Web.

Jeremy, K., 2009. Business Strategy: A Guide to Effective Decision Making, 2 editions. New York: Economist books.

Kefela, G. T., 2010. Understanding Organizational Culture and Leadership –Enhance Efficiency and Productivity. PM World, 12(1), 1-10.

Koontz, H. & Weihrich, H., 2009. Essence of Management an International Perspective, New Delhi: Tata McGraw Hill.

Kourdi, J., 2009. Business Strategy: A Guide to Effective Decision Making, 2 edn, New York: Economist books.

Porter, E. M., 1990. The competitive Advantage of Nations, Northampton, MA: Free Press.

Tashakkori, A. & Teddlie, C., 2003. Handbook of mixed methods to clarify the issue. Educational Researcher, 12, 6–13.

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